Asset classes review - Equities, fixed income markets, currencies

1. THE MICKEY AND DONALD SHOW.
Strategic events shape history only years after they unfold.
Overview:
For all the readers who are in the age range of 35-45
currently, the sole entertainment avenue when they were
5-10 years old was the DD (Doordarshan) and it does not
need any introduction then to the kiddy serials that were
rage during those times. One such serial I did not miss
was the “Mickey & Donald Show”. That 30 minutes
where I was glued to the telly and forgot what was going
in the world outside since that show was an escape to
fantasyland.
While those days are certainly not coming back and the
world has become increasingly complex, intertwined and
bombarded with (mis)information of all kind that there
appears no time to stand and stare, think, revise or
analyze.
The fantasyland of 1980’s has got replaced by “The
Planet of the Apes”- apologies for hurting ape sentiments
here. The cartoon show has now also been replaced by
the real “Mickey & Donald” show. The Real Donald has
replaced the cartoon and there are more than a few
similarities here. The Disney character was a likeable and
cute duck with a bad temper, a mischievous outlook to
life, a lot of positive attitude and coming out of adversity
(mostly out of his own doing) on the winning side.
Today’s Donald could be the real life equivalent of the
cartoon show we have witnessed. The only problem here
is the fact on the What-if? The cartoon mayhem and
adversity that the characters go through before all’s well
in the end cannot be imagined in real life. While it looks
like that real-life events could actually happen with the
real Donald since the personalities match up so much.
The cartoon character of Mickey Mouse has always been
likeable, intelligent and always triumphant on his enemies
in the end. He does face challenges and to overcome
them he institutes great tricks and intelligent moves to
flummox the rival by being a thorough and calculative
character.
Do both characters’ bear resemblance in the real world
of today?
The current Mickey & Donald show in real lives have got
lasting legacies in times to come. What would happen to
the world in another 10 years, if the show prevails, only
time would tell. But certainly, one thing is certain. Just
like the cartoon characters, the real Mickey & Donald are
likely to vanquish their rivals and create a legacy which
would not be forgotten for the many things it would
create over the next several years. Enjoy the show!
Right Horizons Portfolio Management 12/5/2016 Issue 9, Volume I
THE PORTFOLIO REVIEW

2. ASSET CLASS REVIEW
The month of consolidation and breather.
Equities Markets:
November 2016, ended in stark contrast for emerging markets and developed markets; predominantly the US. The main
indices for the US were up 7% during the month and our Nifty50 index was down by 7%. One single month and one
single domestic event for respective markets have caused enough anxiety for both US & India.
The knee-jerk reaction was quickly consolidating into a sharp cut for Indian indices with short term negative impact on
the economy as a result of de-monetization and the strategic impact on sector US dependent sectors such as IT and
Pharma taking a quick and sharp knock.
There is no doubt that the immediate consequences of the demonetization gambit is certainly going to be negative,
however the debate on the extent of strategic positive impact is yet to be assessed. There are several camps from
‘negative only consequence’ to ‘outright benefit’ to the economy as a result; posing arguments and counters to this move.
Mostly likely that the medium-term consequences would be much clearer close to the 6-12 months’ time window after
the event. We believe that the Q3 earnings for the corporate sector and consumption would certainly take a hit, although
what would be critical to watch out is Q4 rather than Q3 earnings since the announcement was after the festive season
and most of the demand was factored into the consumption story.
Fixed Income markets:
What is loss to Peter is profit to Paul. The fixed income markets stage a short and sharp rally with yields falling fast and
high liquidity making way into the banking system. The amount of liquidity was not surprising given 85% of the legal
tender is worthless and has to be brought to the banks for exchange. There are indications already that a small portion
is never going to come and that is good news for banking since it creates liquidity in permanency which can drive down
the yield and keep them low, which is positive for corporate and consumption, albeit with a lag.
Commodities / Currencies:
The hoarders’ metal – gold had taken brief wings immediately after the demonetization news, however, as the crackdown
began on hoarders and jewelers; the prices began to cool fast. The other commodity complex too is still hot given the
buying has sustained in the international markets. However, what we hear from our channels in the commodity hotspots
is that the rally is likely to fizzle out sooner than later since it lacks fundamental demand/supply backing. If this is the
case, the time to make merry is yet to come out for commodities and yes, so the India consumption story can continue
without any major hitch, for now.
JIM CRAMMER
“Every once in a while, the market does something so stupid it takes
your breath away”.
Read more: The Top 17 Investing Quotes ol Time | Investopedia
http://www.investopedia.com/financial-edge/0511/the-top-17-
investing-quotes-of-all-time.aspx#ixzz4Rwl359WX

3. What started out as a nightmare and changed quickly to a dream run
appears to be ending as a damp squib. The year 2016 is in all likelihood,
would go down as yet another year which picked up pace during the middle
part but threw the towel only to be ending with little/no returns for the
equity markets.
Also, what has had a field day (nee’ year) was volatility. Volatility was high
throughout the year on all the asset classes and no asset class was spared.
Currencies, commodities (including Gold), fixed income and equities, have
all gyrated throughout the year and performed completely in an
unexpected fashion.
The best part of all the volatile and challenging time is to test out the
resilience of the investment philosophy and logic. And it is no surprise that
our Nifty Plus portfolio performance continued to stay on the top of
league tables; be it direct competition or the marquee MF schemes which
5-Star ratings. We have been consistent in building the best names in the
large and the mid-cap space in this portfolio from day one and the long
period performance now shows. The consistency of the performance
across all conditions truly makes it a large cap – ‘go to’ portfolio for all
seasons. We believe that since the highest volatility period in the past has
been tested on many occasions, the Nifty Plus philosophy remains the best
thing to invest monies if large cap and industry leading names were the
choice class for investments.
All the volatility did dent our Flexicap Portfolio, however it too turned
out to stand and weather the impact of high volatility. Given the level of
volatility we have seen in the month of November 2016, we believe that
time is perfect for investor seeking reasonably higher alpha over the broad
market indices to invest in the strategy since this strategy has the
ingredients to run much ahead of market performance on the upside. This
was also demonstrated during the 2014 calendar period. We believe that
similar market conditions might recur in the near future and Flexicap
appears the best bet to get there.
Table 1: The Nifty Plus Portfolio remains ahead in league tables
FY17
Scheme/Fund Oct Nov FY 16
FY17 Till
Date
ICICI Pru Focused Bluechip Equity Fund 1.22% -3.69% -6.65% 12.97%
HDFC Top 200 1.79% -3.78% -9.80% 15.95%
Birla Sunlife Top 100 1.37% -5.34% -5.16% 11.19%
Franklin India Bluechip 0.66% -3.89% -3.17% 8.29%
Reliance Top 200 0.81% -5.08% -9.20% 10.06%
Nifty 50 Index 0.17% -4.65% -8.86% 6.28%
RH Nifty Plus Scheme 1.95% -4.86% -7.57% 13.96%
There has been immense thought while
we have run the large cap portfolio. We
have kept the temptation to trade a lot in
the portfolio aside and always looked at
how we can generate wider alpha with
minimum risk and churn.
As a result, the benefits are not often
quick when you compare large cap
portfolios of our MF counterparts.
MF large cap schemes are in the
competitive business of showing quick
returns – typically 1 year or shorter time
frames. This game does provide for
visibility of being on top of league tables
for a while, however, it is extremely
difficult to stay there consistently. This is
therefore extremely important if an
investor has to make wealth over longer
time frame.
Our approach is typically that of 3-5-7
years’ wealth building approach. This
could mean sacrificing 1-year
performance for that 3-5-year sustainable
alpha opportunity.
Nifty Plus Portfolio

4. The fall from grace of the mid-cap portfolio in August 2016 is all but over.
The Super Value portfolio has stabilized and is now positioned not onluy
to recover and losses but also to deliver the returns that should be expected
from such portfolio strategy. There has been no real tweaking to the
portfolio and we believe that current composition is best suited to deliver
solid high double digit returns over the next 18-24 months as the business
thesis and business performance of the invested companies deliver. We
continue to back the names since each business has the potential to
perform in the medium term significantly ahead of the indices and
completion.
The Alliance portfolio
The Alliance Portfolio would see some strategic changes in times to come.
This would be on the basis of the dynamic requirement of the mandate
and our endeavor to make the asset allocation suited to the ever-changing
environment of risk and risk free assets in the medium term. We believe
that making Alliance dynamic through proprietary tools would help us
calibrate our strategic more effectively yet stick and deliver the unique
client mandate of minimum risk and above average return.
This has been our single largest initiative
and thrust area over the past 4 years. We
have uniquely blended the value based
investment method with the mid & small
cap category universe. This has enabled
us to spot and take out opportunities in
the area of fast growing and nimble
smaller companies segment. Yet we have
stuck to core principle of value based
investment management. This has
provided us with immense opportunity
to create wealth and on a sustainable
basis for investors.
SuperValue Portfolio

5. DISCLAIMER
The analysis is based on the information provided by the clients. Right Horizons has used information that is publicly available and developed in-house; and gathered
from sources believed to be reliable. Right Horizons does not warrant accuracy and/or completeness of the same. Please note that persons subscribing or planning
to subscribe the recommended products should do so after verifying the terms of the products. Financial products and instruments are subject to market risks and
yields could fluctuate depending on various factors affecting capital / debt markets. Please note that the past performance may or may or may not be sustained in
future. Insurance is the subject matter of the solicitation for the Insurance Plans suggested. Right Horizons shall not be responsible for any loss or damage of any
nature, including and not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss or profit in any way arising out of the report and its
recommendation. The recipient alone shall be fully responsible and liable for any decision taken on the basis of this report. This report is based on the proprietary
financial modeling of Right Horizons. No part of this report may be duplicated in any form and/or redistributed without the prior written permission of the CEO
of Right Horizons.
Vinayak Kanvinde
Right Horizons Portfolio Management Pvt. Ltd.
3B49 Highland Corporate Center
Above Big Bazaar, Kapurbavdi,
Thane (W) – 400 607